On August 29, 2022, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of a 401(k) plan participant’s claims that plan fiduciaries mismanaged the $1.1 billion 401(k) plan and charged participants excessive fees. This was the first time the Seventh Circuit interpreted the Supreme Court’s recent opinion in Hughes v. Northwestern University, which overturned a Seventh Circuit opinion affirming dismissal of this same type of claim, which we previously discussed here.
In Hughes, the Supreme Court vacated the Seventh Circuit’s opinion affirming that 401(k) plan fiduciaries did not breach the duty of prudence owed to plan participants by offering a large number of investment options, including “needlessly expensive investment options.” The Supreme Court held that plan fiduciaries cannot rely solely on the number of investment options available to plan participants and, instead, must ensure that available investment options are prudent.
Albert v. Oshkosh Corp. was the Seventh Circuit’s first opportunity to apply the Supreme Court’s Hughes opinion. Plaintiff Andrew Albert is a former employee of a subsidiary of the Oshkosh Corporation. The Oshkosh Corporation is the sponsor of the Oshkosh Corporation and Affiliates Tax Deferred Investment Plan (the “Plan”) which has over 12,000 participants. Albert filed suit against Oshkosh Corporation, the Company’s Board of Directors, the Plan’s administrative committee, and other unknown officers and employees (together, “Oshkosh”) alleging that they breached the fiduciary duties owed to Plan participants under ERISA by, among other things: (1) charging excessive fees; and (2) failing to ensure investment options were prudent. The district court granted Oshkosh’s motion to dismiss finding that Albert failed to sufficiently plead its breach of fiduciary duty claims. The Seventh Circuit affirmed dismissal of all of Albert’s claims against Oshkosh, finding that Hughes was not instructive on the excessive fees claims.
On the excessive fees claims, the Seventh Circuit held that one cannot look at the dollar value of the fees in a vacuum and, instead, must compare the fees paid with the services rendered. In Albert’s complaint, he only pled that the fees plan participants were being charged were excessive. He did not detail the services that were being provided in exchange for those fees and, therefore, the Court was unable to determine whether the fees charged were reasonable. The Seventh Circuit affirmed dismissal because Albert only looked at the amount charged for the fees, and not whether they were sufficient for the services provided.
The Court likewise affirmed the district court on the investment options claim. Citing Hughes and the Sixth Circuit’s Smith v. CommonSpirit Health case (also analyzing Hughes), the Court held that “Albert’s allegations are . . . threadbare: that ‘[Oshkosh] failed to consider materially similar and less expensive alternatives to the Plan’s investment options’.”
Neither Hughes, the Sixth Circuit, nor the Seventh Circuit have stated what must be pled for a breach of fiduciary duty of prudence claim to survive a motion to dismiss. However, the Seventh Circuit, in essence, raised the pleading standard for excessive fees claims by holding that allegations of failing to consider one set of investment options for another will not suffice.
The Seventh Circuit will again have the opportunity to review this issue when it hears the Hughes case on remand from the Supreme Court.